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Most physician practices are basing doctor salaries on how much each contributes to the group’s bottom line, reports the Medical Group Management Association (MGMA), of Englewood, CO. MGMA’s Performance and Practices of Successful Medical Groups: 2000 Report Based on 1999 Data, also found there are a wide variety of ways to measure a physician’s production and profit contribution.
Some payment programs tie physician compensation to such production indicators as collections, gross charges, or units of physical work like relative value units or visits, notes MGMA consultant Bruce Johnson. Typically, the profit-contribution approach starts with the physician’s baseline production numbers then subtracts some measure of the costs the group incurs to support the practice. Among the more popular ways to measure physician-related costs in production-oriented pay system include:
• Strict cost allocation, which allocates costs based on use.
• Modified cost accounting, which groups costs into "buckets" that are then charged off individually, by individual production, or by equal shares.
• Market norms, where costs are allocated based on a how each provider ranks on a pre-set benchmark.
Benchmarking is an increasingly popular tool in designing physician compensation programs. While the majority of practices simply use benchmarks to ensure their pay rates are competitive, others build them right into their compensation calculations. Benchmarks are especially popular in production-based pay programs. According to the MGMA, for instance, some practices:
• Rank physicians according to their productivity compared to their peers in their own specialty, using RVUs and gross charge data — then deduct their overhead costs using MGMA overhead ratios, with lower ratios for higher-ranking producers.
• Pay physicians a pre-set rate per encounter, determined by dividing the median national compensation for each specialty by the national medians for ambulatory and hospital encounters for that specialty.
• Pay each physician the median national pay rate per relative value unit.
• Use a ratio derived from a variety of benchmark sources to be sure a physician generates enough revenue to cover his or her base salary plus a full share of overhead, before paying out any bonuses.